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6 Aug, 2007 06:50

Frosty future for Russian ice-cream sector

Despite the hot summer, Russia's ice cream producers are out in the cold. A lack of investment and low profitability make for an icy business climate.

A seasonal product – ice cream is still a favourite for many people in Russia.

The ice cream market is now growing at about 3% annually.

Analysts expect this rate to increase but the industry still faces the problem of too many companies and low profits.

In Soviet times Russia produced up to 440,000 tonnes of ice cream each year. After the economic crisis at the beginning of 1990s production fell by half and the retail trade stagnated.

But the past decade has seen a revival with volumes almost back at their historic peak.

Unlike many other food sectors, the ice cream market in Russia is mostly divided among domestic producers. Russian consumers remain conservative and prefer a traditional product with natural ingredients at a good price.

Currently out of 250 ice cream producers only two represent foreign manufacturers with franchises of Nestle and Baskin-Robbins,.

A dozen leading regional producers hold more than 50% of the market, but analysts say the industry needs to consolidate if it is to develop.

“With multiple small manufacturers facing tough competition and low profitability, many producers will soon be sold or will leave the market providing a basis for consolidation. Then the market will start to attract foreign investors,” said Valery Elkhov from the Union of ice-cream makers.

In the fight to win consumer loyalty producers tend to focus on traditional ice cream styles and that is a mixed blessing for exporters.

“The main customers of our company in European countries and United States are former emigrants from the Soviet Union,” observed Denis Ivanov, Export Director of Russky Kholod.

U.S.-based Baskin Robbins is making the most of Russian themes.

“For the 850th Moscow anniversary we worked out a type of ice cream that embodies the colours of the Russian national flag – vanilla is white, bilberry is blue and cranberry is red,” boasted Vladimir Egorov, the Plant Director of Baskin-Robbins, Moscow.

The peculiarity of Russian ice cream lies in its consumer culture.

In today's Russia ice cream is most commonly sold from ice cream kiosks – like this one. They offer the largest variety of flavours. But for many years the favourite has been a traditional ice cream called plombir with one of the highest levels of fat but its milky taste is also one of the most delicious.

Up to 85% of the Russian ice cream is packed into small portions, which distinguishes it from the biggest consumer market, the United States, where ice cream is seen as a daily food product and is bought in large containers.

One result is that Russians eat only a third as much ice cream as the average American – about 3 kilos per person per year.

The fact that demand for this comfort food is on the rise is a sign that the Russian market is maturing, but with consumption still low by global standards there's plenty of potential.